Rate hold makes sense - for now

By webmaster

Posted on Wednesday, 04 July 2012

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Industry stakeholders are satisfied with yesterday’s decision by the Reserve Bank of Australia (RBA) to keep interest rates on hold, admitting the anticipated flow-on effects from previous rate cuts are yet to be felt.

Real Estate Institute of Australia (REIA) president Pamela Bennett said the decision was not unexpected, and was appropriate considering the successive rate reductions at the RBA's two previous meetings.

Ms Bennett said while there are some indications that property markets may have improved slightly, the full effect of the May and June cuts won’t be clear for several months.

“We believe the RBA was overly cautious in not moving earlier this year, but now on the back of two successive rate cuts, it is understandable they will take time to assess their effect before taking further action,” Ms Bennett said.

But Ms Bennett said the industry needs to be cautious about reports of a June recovery in the property market.

“That’s not to say we wouldn’t expect an improvement in the aftermath of interest rate cuts, but there are a number of other measures we need to take into account before we can call it a change in direction,” Ms Bennett said.

However Michelle Hutchison, spokesperson for RateCity, an Australian financial comparison website, said future rate cuts could still be on the cards if the previous rate falls have little to no impact on the local economy.

“The RBA has dropped the official cash rate by 75 basis points in just two months," she said.

"We haven’t seen the RBA move so dramatically for almost three years so it’s not surprising that they decided to hold the cash rate this month to allow the previous rate cuts to flow through to the economy.

“With the cash rate sitting at 3.5 per cent, the RBA still has room to drop further this year if local or global economic conditions deteriorate.”

Real Estate Institute of South Australia (REISA) president Greg Moulton said buyer inquiry has lifted a little after the recent falls in interest rates.

“Interest rates are front and centre of homebuyers thinking, so the earlier drops have been really important to start to stimulate the property market,” he said

“The housing market is still going through a pattern of slower activity, so we do hope that in coming months, the Reserve Bank may even consider further drops.”

“On the flip side though, there are some great properties on the market which are available for astute buyers.”